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Adjustable Mortgage Rate


Adjustable Mortgage Rate should be taken when you have a steady income and there is a slump in the market. In such a condition, you pay less and save more.

Adjustable Mortgage Rate has an interest rate which is subject to changes during the life of the loan. The percentage of change depends on the market conditions. Generally, there is an adjustment period in which time limit is ascertained. Say between 1 year to 5 years, the interest rate remains same in this period and is reviewed for the next interval after the expiry of this period. This continues till the loan is repaid in full.

Before taking an adjustable loan, it is important to know what exactly is the adjustment period, the index according to which the rate of interest is calculated and the maximum percentage to which the rate can be hiked.

Adjustable mortgage rates are generally lower than the current rates in the beginning. It is the best mortgage option for those who know their income will increase after a certain time or who own other assets and are sure they would be able to repay the whole amount before the revision of rates. Such people benefit immensely from this option.

Disadvantages Of Adjustable Loans

The level of uncertainty is very high in such cash advances and it is certainly not meant for those belonging to a low income group or the ones opting for a second mortgage. Your future planning is left to mere guesswork as you have to pay less if the rates go down and more if the rates are high.

It depends on the economic growth and its not necessary that the economy will continue rising forever. It might face a slump and in such a condition, it can prove to be your worst nightmare. This is what happened in United States, the interest rates are on an all time high because of the sub prime crisis.

Low mortgage rates look very attractive in the beginning as the rate of interest is lower than the current interest rate but one should go for it only after carefully examining all the pros and cons.

Opting for such a loan without being sure how you are going to repay it, mean sleepless nights. Different companies offer varying interest rates and thus it is imperative to choose the one that is best suited according to your needs.

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